Online sales tax wins support in Congress

A proposed federal law that would greatly expand sales tax collection by online retailers took a big step over the weekend. The Senate voted Friday 75-24 in favor of an amendment to support the Marketplace Fairness Act during discussions over the Senate’s 2014 budget plan, which passed on Saturday as a non-binding resolution.

In order for the Marketplace Fairness Act to become law, the House and Senate will now need to pass the bill as a standalone piece of legislation or as part of a larger bill, a spokeswoman for Senator Dick Durbin (D, IL), sponsor of the Main Street Fairness Act, says. “The importance of the vote on Friday was to show that there is overwhelming support for the idea in the Senate,” she says.

Friday’s vote to include Marketplace Fairness “proves that an overwhelming majority of senators support this bipartisan legislation to level the playing field for brick-and-mortar retailers,” Durbin says. He notes that Marketplace Fairness is co-sponsored by 28 Republicans and Democrats in the Senate and 48 Republicans and Democrats in the House, and supported by 15 Republican governors and seven Democratic governors. In addition, Durbin notes that the Marketplace Fairness legislation differs from other sales tax bills that have died in Congress in recent years by providing states with more options in how they set rules for what products are subject to sales tax, to make it easier for retailers to collect tax across multiple states.

If enacted into law, Marketplace Fairness as currently written would let the 45 states plus the District of Columbia that have a state sales tax mandate that all retailers must collect sales tax whether or not they have a physical presence, or nexus in legal terms, such as stores or distribution centers in a customer’s state. The legislation exempts retailers with less than $1 million in annual remote sales, that is, sales in states other than those where they have physical locations. Under current federal law, states can only mandate sales tax collection by retailers that a have an in-state physical presence.

The votes this weekend drew predictably strong reactions from those in the retail industry on both sides of this heated debate. Among those favoring expanded sales tax collection are retail chains and Amazon.com Inc., No. 1 in the Internet Retailer Top 500; those opposed include eBay Inc. and NetChoice, a lobbying group for retailers including Overstock.com Inc. and members of the Electronic Retailing Association, which represents TV-based and other merchants.

Supporters contend the Senate bill will provide a more level playing field by requiring more web merchants to collect sales tax, while raising revenue for cash-starved states. Opponents argue that it will stifle Internet business and unfairly require online and catalog retailers to take on the cost of collecting revenue for states.

“This is a critically important issue for retailers—both large and small—across the country,” says Matthew Shay, president and CEO of the National Retail Federation, an industry group representing both retail chains and web retailers. “NRF members will continue to educate and lobby legislators on the importance of leveling the sales tax playing field for all retailers—no matter their preferred channel.”

Betsy Laird, senior vice president of global public policy of the International Council of Shopping Centers, adds that the Marketplace Fairness Act would replace an “outdated” tax system that favors web and catalog retailers over store merchants. "Government should not be in the business of picking winners and losers in the marketplace, and our free market system should not be burdened by an outdated, overly complicated and blatantly unfair tax policy," she says.

But Brian Bieron, senior director of global public policy at eBay Inc., notes that Marketplace Fairness would unfairly subject small retailers to the burden of collecting and remitting tax for some 10,000 state and local taxing jurisdictions. “The current bill would force small business owners who sell online to become tax collectors for every state across America, threatening them with audits and litigation by tax collectors from states that are thousands of miles away from where they live, work and create jobs.” he says.

We R Here, a group representing small online retailers and backed by eBay, contends that Marketplace Fairness favors large retail chains who can better afford to collect and remit sales tax across multiple states. “Senators need to understand that $1 million in sales translates to less than $100,000 in business income—enough to support only a few employees,” says Phil Bond, executive director of We R Here.